IRA-Rollover-Per-Year Rule Clarified

Earlier this year the IRS announced that individuals with an IRA account can only do one rollover from one IRA to another in a 365-day period noting that the rule would go into effect January 1 2015. That decision came directly after a pivotal Tax Court case Alvan L. Bobrow and Elisa S. Bobrow v. Commissioner of Internal Revenue.

That regulation would apply to rollovers from one IRA to another as well as one Roth IRA to another. Rollovers out of retirement plans and Roth conversions aren’t covered under this rule. The latest announcement further clarifies the timing and application of this regulation.

First this clarification made clear that the rule will not be implemented before January 1 2015 putting to rest any concerns from advisers that rollovers made in 2014 might be subject to the new regulation. This way if a rollover is completed for a client today another rollover that’s completed in January for the same client won’t be considered a “second rollover” under the IRS’ regulation giving IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.

Also the announcement clarifies that the rule applies to all of a given client’s IRA accounts. Previously some people thought that the rules applied individually to IRAs and Roth IRAs allowing one IRA-to-IRA rollover and one Roth-IRA-to-Roth-IRA rollover but that’s not the case. Only one of these transactions will be allowed per 365-day period beginning in 2015.

Clients moving an IRA who end up getting a check need to ensure that the check is made to the receiving IRA and not to them personally. Any check made directly to the client is considered a rollover and rules will apply. Checks made to an institution however will be considered a trustee-to-trustee transfer.

Next year the limit on IRAs will require advisers to handle rollovers as a direct transfer from one trustee to another. In order to avoid losing money to taxes advisers should be asking clients where any new money is coming from so that the IRA is not lost to taxes because it is coming from another IRA rollover. The IRS is encouraging IRA trustees to offer to do direct rollovers to individuals requesting rollover distributions so that account holders will not be subject to these rules.

Lindemeyer CPA seeks to help our customers navigate these complicated changes and make the most informed decisions. For inquires about the IRA clarification rule contact us and we’ll be happy to answer questions.

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